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RSS By: Alan Brugler, AgWeb.com

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Watch Out for Weather

May 23, 2014

 Brugler

Market Watch with Alan Brugler

May 23, 2014

Watch Out for Weather 

For many years, I have emphasized my view of weather forecasts, which is "You can get any weather forecast you want to pay for". You can always find a weather guru whose model is saying the opposite of someone else’s, particularly if you are looking more than a week out. The data has gotten better over the years, but the interpretation is still pretty variable. Even if the forecasts agree, traders will disagree on which time frame is important, i.e. it is dry this week but will rain next week or the 30 day is wet, etc. 

To further make my case, the correlations between weather events spread over 326 million US crop acres and final national yield and production are fairly weak. We know that drought does drag down yields, and high temps during pollination can hurt corn yield if adequate moisture isn’t present. Applying that to corn planted over a 2 month maturity period (and some of which consists of  drought tolerant hybrids) lends further uncertainty.

My message from the above is simple. We’re into the growing season, and weather news will predominate. One of the cardinal rules of trading is that "if you trade the news you lose". Try to tune out the daily hype, watch for broad trends, and let the price charts tell you what the market really knows about the situation.

Corn was down 1.1% this week. Ethanol stocks shrank 300,000 barrels last week, and daily production was up for a bull friendly combination. Weekly export sales were solid for old crop at 507,900 MT, but disappointing at only 62,500 MT for new crop.  China continues to unwind old crop commitments, cancelling another 60,100 MT this week. They are beginning to auction off reserve corn bought in previously to support local prices. China sold 988,000 MT out of 1.2 MMT of reserve corn offered this week.  Prices were "better than expected".  Some Northeast China areas are short on cash corn because so much of the corn was sold to the Chinese government under the support program.  US Planting progress got behind the 5 year average pace at 73% vs. the 76% average, but is expected to catch up by next Tuesday’s report. The Commitment of Traders report on Friday night showed that the large speculator funds cut 47,472 contracts from their net long position in the week ending May 20, reducing it to 207,572 contracts.  

Soybean futures were 50 cents higher this week after losing 22 cents the prior week.  Meal was up a sharp 4.66%, or $22.40/ton.  Exports continue to absorb a lot of production and some crush plant draw areas are getting tight on bean supplies. USDA reported weekly exports sales of 615,600 MT, with a stronger than expected 164,400 MT of old crop. Old crop export commitments are 103% of the USDA full year forecast, ahead of the typical 99% pace for this date. The Commitment of Traders report on Friday afternoon showed the spec funds exiting another  10,844 soybean longs during the week, dropping their net long to 120,919 contracts as of May 20.

Wheat futures were down again this week. KC was off 3%, while MPLS lost 2% and Chicago was down 3.2%. Weekly export bookings rose slightly to 352,000 MT from 252,000 MT the prior week. Old crop sales were 142,200 MT. Drought conditions moderated slightly as the week progressed, thanks to rainfall of up to 2 inches in stressed areas of the Panhandle.  Texas may see up to 4 inches of additional rain over the next 5 days, but too late to help the wheat crop. It is more likely to interfere with harvest. Estimates of marketing year exports out of the EU were revised upward to more than 30 MMT, a new all time record. The Commitment of Traders report showed the large spec funds trimming their KC HRW long by 2,597 contracts in the week ending May 20. They were net long 24,436 contracts in Chicago and 31,926 contracts in KC on that date.

 

 

Commodity

 

 

 

 

Weekly

Weekly

Month

05/02/14

05/09/14

05/16/14

05/23/14

Change

% Change

July

Corn

$4.99

$5.07

$4.84

$4.78

($0.05)

-1.14%

July

CBOT Wheat

$7.16

$7.22

$6.74

$6.53

($0.22)

-3.23%

July

KCBT Wheat

$8.21

$8.28

$7.68

$7.45

($0.23)

-2.96%

July

MGEX Wheat

$7.75

$7.95

$7.40

$7.25

($0.15)

-1.96%

July

Soybeans

$14.70

$14.87

$14.65

$15.16

$0.50

3.45%

July

Soybean Meal

$480.40

$487.30

$480.20

$502.60

$22.40

4.66%

July

Soybean Oil

$41.51

$41.18

$40.75

$40.38

($0.37)

-0.91%

June

Live Cattle

$138.40

$138.05

$137.90

$136.30

($1.60)

-1.16%

Aug

Feeder Cattle

$190.33

$191.38

$193.33

$194.15

$0.82

0.43%

Jun

Lean Hogs

$122.23

$120.18

$125.25

$123.73

($1.52)

-1.22%

July

Cotton

$94.32

$92.36

$89.82

$86.64

($3.18)

-3.54%

July

Oats

$3.50

$3.53

$3.37

$3.46

$0.09

2.52%

July

Rice

$15.49

$15.43

$15.40

$15.25

($0.15)

-1.01%

 

Cotton futures were down 3.54% this week. Speculative longs have been exiting, cutting 9,640 contracts from their net long this week, bringing the CFTC total down to 47,404 as of May 20.  Export sales commitments are running 99% of the USDA forecast for the year. They would typically be 102% by now, due to business typically carried over to the following marketing year. China continues to make efforts to use up more of its burgeoning stockpile, at the expense of imports.  US weekly export sales were actually pretty good by recent standards at 518,400 running bales, and China bought 269,300 RB. Rain in Texas is being welcomed, with one bearish brokerage type calling it a "million bale rain".

Cattle futures were down 1.2% this week. Cash cattle trade was mostly $1-2 lower this week at $144, with the north at $230-234.  Futures were supported all week by their discount to the cash cattle market but sold off on Friday because of the weaker cash cattle trade. Estimated weekly slaughter of 599,000 head is up from 591,000 the prior week but well below 653,000 last year. Beef production YTD is 5.7% below last year. Production this week was 7.8% smaller than the same week in 2013. Average carcass weight is about 4# above last year, helping to offset an 8.3% drop in the slaughter run.  The USDA Cold Storage report confirmed that beef supplies in the cooler were down 21% from year ago due to the cumulative effect of low slaughter numbers. Wholesale prices were strong this week, with Choice boxed beef up 2.7% and Select up 1.9% on a Friday/Friday basis. 

June Hog futures were down 1.22% this week after a 4.2% pop the prior week. Weekly FI slaughter was projected at 1.973 million head, down from 1.999 million head last week and 2.072 million a year ago. That meant weekly slaughter was down 4.8% from last year, but due to higher carcass weights the pork production was actually up 0.3%!  Carcass weights are up an average of 12 pounds per hog vs last year!  The pork carcass cutout value was up 87 cents for the week. Weekly pork export sales were up from the prior week’s 8,000 MT @ 11,600 MT.  The Cold Storage report showed total pork in the coolers on April 30 was down 16.7% from last year, although up slightly from March.

Market Watch

The markets are closed on Monday for the Memorial Day holiday in the US. There may be a little position adjusting on Tuesday from surprise positions inherited via the June grain options expiration on Friday the 23rd.  USDA weekly Export Inspections and Crop Progress reports will be released a day late (on Tuesday) due to the Monday holiday. Weekly Export Sales data will also be delayed until Friday morning.  The usual Wednesday EIA energy report is also expected to be delayed until Thursday. Friday will also mark month end, with asset allocation traders likely cashing out the monthly winners and buying losers all week. One major index fund will also be rolling longs out of July futures at the end of the week.

Visit our Brugler web site at http://www.bruglermarketing.com, find our iPad app "AgMarket" in the app store, or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.

There is a risk of loss in futures and options trading.  Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results.  Comments made in this article are in no way to be seen as an endorsement of futures and options trading. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.                  

Copyright 2014 Brugler Marketing & Management, LLC

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